Financial Management - Study Mode

[#341] When two portfolios have identical values and payoffs then it is classified as
Correct Answer

(D) put call parity relationship

Explanation

Solution: When two portfolios have identical values and payoffs then it is classified as put call parity relationship. Put-call parity is a principle that defines the relationship between the price of European put options and European call options of the same class, that is, with the same underlying asset, strike price, and expiration date.

[#342] Greater value of option, larger span of time value is usually results in
Correct Answer

(B) longer call option

Explanation

Solution: Greater value of option, larger span of time value is usually results in longer call option. A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option.

[#343] Price at which European and American options can be exercised is classified as
Correct Answer

(D) Both A and B

Explanation

Solution: Price at which European and American options can be exercised is classified as exercise price and strike price.

[#344] Current option price is added to present value of portfolio for calculating
Correct Answer

(B) current value of stock

Explanation

Solution: Current option price is added to present value of portfolio for calculating current value of stock.

[#345] In options pricing, an exercise price rises from lower to higher which leads to
Correct Answer

(C) option value decreases

Explanation

Solution: In options pricing, an exercise price rises from lower to higher which leads to option value decreases. Before venturing into the world of trading options, investors should have a good understanding of the factors determining the value of an option. These include the current stock price, the intrinsic value, time to expiration or the time value, volatility, interest rates, and cash dividends paid.